Making
CRM work
By Darrell Rigby & Fred Reichheld
What’s going on when everybody wants something that disappoints
most users? Customer Relationship Management, or CRM, which
harnesses Internet and other technology to build customer loyalty,
has just such a dilemma swirling about its applications.
By many measures CRM is the hottest growth tool to hit management
techniques. Books on the topic have surged from one in 1989 to
14,000 in 2000. Bain’s global Management Tools 2001 Survey of
senior executives found usage expected to double this year—from
35% of respondents to 72%. Who wouldn’t want to adopt a tool
that promises—in hard times—to quickly winnow out your most
profitable customers and then target them with campaigns to
increase their purchases and strengthen their bonds of fidelity
to your brands, while lowering the cost of interactions? Indeed,
one CRM provider offers “CRM in 90 Days,” and another, in
just nine. It’s almost as seductive as weight-loss advertising.
Yet few CRM users are skimming off
Many successful CRM programs,
like the New York Times’, don’t even
look like CRM at the outset.
the cream. The Gartner Group finds that
55% of CRM programs are failing to pay
back on programs that typically cost $60
million to $130 million. And CRM, among
25 tools evaluated by 451 senior executives,
placed fourth to last in satisfaction ratings on the Bain survey.
Indeed, a fifth of CRM users had abandoned the tool altogether.
Darrell Rigby is a director of Bain &
Company in Boston and founder
of Bain’s Management Tools Survey.
Fred Reichheld is a Bain Fellow and
author of Loyalty Rules: How Today’s
Leaders Build Lasting Relationships,
Harvard Business School Press:
September 2001.
Indeed, many successful CRM programs, like
So how do you fix the problem?
The New York Times’, don’t even look like CRM
The problem starts with CRM’s definition. If you
at the outset. The Times spent years last decade
log on to CRMguru.com, the most commonly
asked question is: “What is CRM?” The truth is
CRM is not so new and slippery. It draws on the
tried-and-true management technique of customer
segmentation, the starting point for figuring out which
customers you want to CR—create relationships
with—and which you want to CM—cost manage.
(See Figure 1: Abandoning CRM) With CRM,
targeting research of core customers to find similar
pools in cities outside of New York. Then it set
about understanding what it would take to appeal
to those pools, and, by way of response, upgraded
its local distribution system and customized local
content like weather and TV listings to meet
the market. The upshot? The New York Times is
growing in a relatively flat industry, and it has a
as with good old-fashioned loyalty leadership, the
customer retention rate of 94% in an industry that
win-win economics lie in segmenting the attractive,
averages about 60%. All this, long before acquiring
profitable clients—with whom you can broaden
new CRM technology, which it is just now
and deepen relationships—from the cherry pickers
implementing to automate some processes.
who you need to serve at low cost. So CRM
starts with customer strategy.
Figure 1: Abandoning CRM
2000 Defection Rates: CRM vs. Related Tools
20%
18%
15%
11%
Average
11%
10%
7%
7%
6%
5%
0%
CRM
Customer
Retention*
Customer
Satisfaction
One-to-one
marketing
Customer
Segmentation
*1999 result: Customer Retention was replaced by CRM in this year's survey.
B a i n & C o m p a n y, I n c .
Making CRM work
2
The Times example leads to a second fix—realigning
business processes with strategy. In a recent CRM
Grand Expeditions capitalized on a list of
Forum survey of senior executives, 87% pinned
customers who hadn’t traveled for more than
the failure of CRM on leadership and change management
three years. One-to-one marketing to those
issues. Only four percent cited software problems.
customers yielded three times the average
The Times invested in upgrading its printing and
conversion of a typical mailing, a key
delivery processes and subscriber call-handling
contribution to the company’s 30% increase
procedures before it invested in Internet-based
in bookings in a flat industry.
software to speed these processes and reduce costs.
Insurance company USAA, another loyalty leader,
provides further evidence that process change must
precede technology in getting CRM right. The
company—the premier insurer of military personnel
and veterans—was historically organized into six
regional units, each comprising large functional
departments (claims, underwriting, policy holder
When your customer strategy is at the center,
and your processes are aligned, you can make wise
decisions about where software technology can
help—and where low-tech solutions make more
sense. Loyalty leader Enterprise Rent-A-Car, in
the wake of the World Trade Center disaster, gave
its branch managers latitude to except the firm’s
services, etc.).
“no one-way rental” rule, which allows it to keep
Today, in response to a greater understanding of
what customers value, those six units have been
broken into 110 teams, each of which focuses on
the specific needs of smaller and more uniform
segments of customers. Within these teams, the
thousands of phone reps are divvied up even
further into groups of 10 to 12. The members
costs down. Enterprise waived all drop-off fees
across the US until September 21st, to ensure that
all of its customers could make it home. That no-tech
move bought Enterprise a lifetime of loyalty from
travelers stranded at airports and train stations, even
as other rental car companies were charging oneway penalties of $1000 and more.
of each group work out their own schedules
and vacations, solve problems together, and are
A low-tech tool related to CRM comes to
bear, too—customer satisfaction measurements.
evaluated together.
Consider the technology decisions loyalty leader
Team members know the regional idiosyncrasies
of the insurance business. They also know their
customers—and each other—better than they did
in the old system. Customers value the “small
company touch.” And USAA’s former CEO, Bob
Herres, believes the small-team structure is a key
reason USAA has been able to grow and maintain
one of the highest retention rates in the industry,
while simultaneously shrinking its bureaucracy.
(For more on the links between employee loyalty
Harley-Davidson made after quizzing its customers.
Harley-Davidson’s CEO, Jeff Bleustein, turned
down a proposal for a centralized Web site that
would have offered Harley’s full line to anyone
with access to a computer. Why? Customers
wanted to shop Harley on the Internet, but
Bleustein knew that such a site would undercut
dealers and, understanding the importance of dealer
relationships to the company’s strategy, sent the
Web experts back to the drawing board.
and customer loyalty, see www.loyaltyrules.com,
and participate in Bain’s Loyalty Acid Test Survey.)
B a i n & C o m p a n y, I n c .
Making CRM work
3
Today, Harley’s central Web page asks customers
marketing. Travcoa, a luxury tour provider purchased
to choose from a list of Harley’s participating
by Grand Expeditions, had built its reputation on
e-commerce dealers, or to enter their zip code to
pleasing customers across destinations around the
find the nearest one. A click on the dealer name
world in an industry where customer acquisition
routes them to the local dealer’s own Web page.
costs are very expensive, and clients are risk averse:
If they can afford to spend $40,000 on a vacation,
Customers win because they now have Web access
they want to ensure it’s the trip of a lifetime. After
to a wide range of Harley merchandise. Dealers
Grand Expeditions acquired several tour operators,
are happy because they earn the retailing profits
it set out to benchmark CRM techniques and
from all Web sales; Harley isn’t encroaching on
opportunities at all its acquisitions. At luxury tour
their territory. And, they establish connections
company Travcoa it found opportunity in an old
with new local customers who found them via
list of customers who had not traveled with the
the Web. Harley wins because it has successfully
tour operator for more than three years. Tailoring
established a Web presence that provides customers
its CRM effort with one-to-one marketing to that
convenience at low cost, and its dealer relationships
list of customers, Grand Expeditions yielded three
have emerged stronger in the process. Too many
times the average conversion of a typical mailing,
companies venturing onto the Web have alienated
a key contribution to the company’s 30% increase
such partners. (Levi Strauss had to pull its award-
in bookings in a flat industry.
winning Web site that let consumers buy jeans
online because the Web site bypassed and angered
So how do you achieve the promise of CRM
Levi’s retailers.) By starting with customers,
profits? Start with customer strategy, realign your
Bleustein knew when to “Say When.”
business processes to fit the strategy, and tailor your
technology selection to enhance your processes.
For the segment of customers that want a deeper,
It’s not simple, and it takes a lot more than a
broader relationship, there’s another tested tool that
90-day technology deployment. But it works.
CRM software can speed and refine—one-to-one
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